The mark surged and the dollar fell yesterday after the Bundesbank surprised currency traders by leaving German interest rates unchanged.

Many traders had been expecting a cut, and the decision by the central bank raised concern that German rates would not move any lower.

We probably have seen the bottom for German interest rates," said Robert Fullem, a currency salesman at National Westminster Bank. With the German economy showing signs of rebounding from a prolonged slowdown, "I would be surprised if they cut the repo rate any further," he said.

The Bundesbank left the discount rate at 2.50 percent and the Lombard rate at 4.50 percent. It kept its chief money market rate, the securities repurchase rate, at 3.30 percent until its next meeting in four weeks.

The dollar dropped as low as 1.4703 marks, its lowest since July 16, when it reached 1.4692 marks. In late trading in New York, the dollar settled at at 1.4775 marks, down from 1.4890 marks on Wednesday. The dollar also traded at 108.31 Japanese yen, down from 108.40 yen. The British pound rose to $1.5575 from $1.5525.

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The dollar held up better against the yen amid expectations the Bank of Japan would not soon raise rates.

The Bundesbank last cut the repo rate, a key money market rate, in February, to 3.3 percent. Yesterday's inaction will leave German rates unchanged for at least four weeks, as the Bundesbank council takes a summer break.

The central bank's decision disappointed traders who expected interest-rate differentials to widen in favor of the dollar, with forecasts for a German rate cut and a rate increase in the United States. One- month Eurodollar deposits yield 5.4375 percent, compared with 3.3125 percent for one-month Euromark deposits.

"Everyone felt the Germans would lower rates, and we'd raise them," said James McGroarty, chief currency manager at Potomac Babson Inc., a money manager. "The fact that hasn't happened has led the dollar to fall."